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  • Writer's pictureThe Paladins

Fragments from a War Diary, Part #36

Ukraine is an impoverished country benighted by war. But what became of its middle and upper classes as war began? The short answer is that they fled abroad or the ended up in prison.

The men appearing in the image accompanying this article are, from left to right: Yuriy Kosiuk; Viktor Pinchuk; Rinat Akhmetov; Ihor Kolomoisky; and Vadim Novynskyi. These are not the only very wealthy men with Ukrainian backgrounds, and it is not really known how much money each of them really has although all of them except Mr Novynskyi are reputed to have have been billionaires, in asset value if not in cash, at some stage. However they are or were some of the most politically influential of Ukraine’s wealthiest classes.

Of these five men, Mr Kosiuk is rather obscure, and little has been heard of him since the beginning of the war in Ukraine in 2022. He was the head of a major agricultural business but the fate of that business is unclear (at least to this author). Mr Pinchuk, whose business was steel piping, a substantial part of which was in Crimea and now under Russian occupation, is believed to have fallen out with the current Presidential administration in Kyiv, and lives in Los Angeles. Mr Akhmetov is believed to be in London, his Azovstal steel factory in Mariupol having been destroyed by the Russian Armed Forces whereas another steel factory also in Mariupol being owned by an ally of Russian President Vladimir Putin as mysteriously spared. Mr Kolomoisky, once the de facto (and even the de jure) Governor of Dnipro, a city in the east of Ukraine now the jumping-off point for the front line in Donetsk Oblast, was arrested a few weeks ago and is in prison on fraud and money laundering charges. He is the subject of international sanctions. Mr Novynskyi, once a junior partner of Mr Akhmetov, apparently now lives as a priest in Zürich.

An essay could be written about each of these gentlemen and many more such individuals. However the common feature between them is that they were participants in Russia’s and Ukraine’s notorious “voucher privatisation” schemes in the 1990’s. As the Soviet Union imploded, with the advice of international economists the Soviet Union’s state-owned and socially-owned industries were transferred into private ownership by means of distributing vouchers to the workers at each of the factories or other places of work owned by these mammoth government-run companies. However there was no familiarity amongst Ukrainian or Russian workers with private shareholding; indeed the concept of being a partial private owner of a company was not understood by virtually anyone in the former Soviet Union and almost nobody who received these shareholding certificates realised that they had any value.

Instead they were hungry, because the Soviet Ruble had collapsed and their bank account savings had been wiped out overnight. Therefore they could not afford to buy food or other basic necessities in the shops. To buy anything, you suddenly needed US dollars and they could not be bought with local post-Soviet currencies. Therefore unscrupulous managers of former state-owned enterprises offered hungry workers food in exchange for their share vouchers, and overnight they became the private owners of massive Soviet corporations. These people became known as the “Oligarchs”. They then leveraged their new private companies’ assets, borrowing money from western banks and offering the assets of the companies as collateral. Then they asset stripped the companies in the context of a series of barely functional post-Soviet legal systems; moved the loaned funds offshore in a series of fraudulent transactions; they became vastly wealthy; the companies defaulted on their loans; this ultimately led to the 1998 Russian banking crisis, as Russian banks that had served as intermediaries for these transactions backed by Soviet-era collateral assets defaulted on their repayment obligations to the western banks.

The new upper classes, in the interim, namely the Oligarchs and their friends and colleagues who become their financial, legal and other advisors of various kinds, lived luxuriant lives while the greater mass of Ukrainian and Russian citizens toiled in continued poverty worse than anything under the Soviet system. The gross inequities inherent in this system led ultimately to deeply unstable Ukrainian politics, as different Oligarchs supported different Ukrainian politicians in relentless political battles, buying and rigging elections; while in Russia, dissatisfaction with the political and economic instability caused by the reign of the Oligarchs led to a little-known FSB officer being elected as President of Russia in 2000. His name was Vladimir Putin.

Mr Putin would deal with the Oligarchs in his own inimitable way. He would provide them with instructions with what to do with the Soviet-era assets, and they would obey him. If they did not, he would imprison them, or he would have them killed. Mr Putin also operated this system with the Ukrainian Oligarchs, and all of the five men (for the Oligarchs all were and are men) had relations, like it or not, both with the Kremlin and with Mr Putin personally. None of the Oligarchs liked having such relations, of course; because to have such a relationship with Mr Putin is and always has been a distinctly dangerous business.

The Russian invasion of Ukraine was substantially driven by the fact that the Ukrainian Oligarchs were not doing what Mr Putin required of them - running Ukraine’s economy and political system as a vassal state to Russia. So Mr Putin decided to invade. One irony is that it was one such Oligarch - Ihor Kolomoisky - who used his colossal funds to place the current Ukrainian President, Volodymyr Zelenskiy - in office. Mr Zelenskiy then deposed his own mentor as part of his anti-corruption drive, seeking to place Ukraine ever more in a Western orbit and purging the Police, Courts, internal security forces and all the machinery of state of insidious pro-Russian influences. Mr Kolomoisky, who had been sanctioned by the US Government for international criminal acts, was arrested recently and now languishes in prison.

It is difficult to emphasise how significant a turning point this is for Ukraine. The arrest of the once untouchable Mr Kolomoisky - who used to live in a fortress in Dnipro and reputedly had a shark tank in his office in the style of a James Bond villain - demonstrates to all Ukrainians that the era of the Oligarchs, and the associated Russian style of government of Ukraine by way of death threats from the Kremlin, are truly over. In the future, once Ukraine’s economy is revived, there must be a transition to a genuine market economy that meets Euro-Atlantic standards. By eliminating the last of the politically powerful Oligarchs, Mr Zelenskiy has demonstrated both to Ukrainians and to the world that he is committed to this positive course for the future of Ukraine.

As a result of the war and Mr Zelenskiy’s efforts to reform Ukrainian politics and business and to start the fight against ingrained corruption, there has been an exodus of many professional and business people from the country, often well-educated, who acquired the funds during the Oligarch years to be able to leave the country if (as it ultimately did) everything went wrong. These people will take time to replace. It is imperative that they be replaced by people newly trained in western values, of honesty, integrity, transparent public administration and the values of the free market and social democracy working together, for Ukraine to have the bright future her people deserve.


Any views expressed herein are purely the private opinions of the author and should not be attributed to the Paladins Organisation or otherwise.


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